The next step for one of the most important regulation changes for the viability of the retirement village sector closes Friday.

The NSW government has proposed that operators will be required to buy back unsold village homes after six months in the metropolitan area and 12 months in regional areas.

Responses to the discussion paper close this Friday. The final regulations are expected by Christmas.

Lawyers MinterEllison call this “One Minute to Midnight” if passed because even in the best markets most village homes don’t sell and settle within six months -and we are not in the best of times. This means operators will have to find the cash to pay out at 6 or 12 months.

This is already happening in QLD which has an 18 months buyback rule now at maturity, with ‘hundreds’ of homes being cashed out.

Here is a snapshot of the proposed NSW regulations, summarising a Russell Kennedy (lawyers) newsletter of yesterday:

operators will be required to pay the exit entitlement six months after vacant possession for metropolitan villages and 12 months for regional villages

“metropolitan area” will include the Blue Mountains, Hawkesbury, Wollondilly and the Central Coast council areas

the new regulations will be the same for registered interest holders(including freehold, strata, community and company title residents) as non-registered interest holders

an independent valuation of the village home will be required at the time of payment

residents will have the option to opt out of the valuation process

Russell Kennedy says the proposed changes will have significant consequences for residents and operators:

it will remove the opportunity for industry innovation, and

adversely affect sale prices of units

the requirement for valuations will likely significantly increase the cost to operators and residents undertaking the resale process

the opt in/opt out process will increase the complexity, administration and costs for operators and residents

adversely affect the liquidity of operators

adversely affect debt financing for developing villages

adversely affect investment in the industry

Industry submissions are being made by the Retirement Living Council (Property Council) and LASA.

To be effective separate submissions are required by operators.

The State resident association, the RVRA, is also making a submission. Informally they are indicating they don’t want to jeopardise the financial security of the sector but equally want residents to having access to their funds for residential aged care and other financial demands.